A business can’t run successfully without a business plan, but having money to execute those plan is more important, growth comes with money. Most small business owners rely on external funding, such as a business loan from online lenders and banks. This business loan comes with a different interest rate and loan terms. As a borrower, a business owner has to meet the criteria and fulfill some requirements. Usually, there are two types of loans secured or unsecured loans –secured loans are also known as collateralized loans. Depending on the creditworthiness and financial needs, both borrower and lender choose the business loan.
Borrowing and lending a loan is a risky business; if a borrower fails to make a payment on time, it means the business fails to generate enough profit and the lender has to deal with the loss. Well, this isn’t the case; lenders tend to protect themselves from the damage. When a borrower is signing a loan agreement, he or offer some collateral – something to secure the loan. In other words, you are agreeing, if things go south, the lender has the liberty to take control of your assets. As the risk factor is high with business owners with a bad credit score, so in order to get a good deal, a borrower has to offer some collateral. Seizing your assets means that the lender takes possession of your assets, sells it, and with the money pays off the debt.
For the business owner who has bad business & personal credit score, this is the easiest way to increase working capital and to grow the business. Collateral can be any assets, which is acceptable by your potential lender and law. If you are considering to apply for a collateralized loan, here are the following assets:
- Real estate and Real property
Most small business owners tend to give real estate or property as collateral to the lender. The value of Home equity can increase over time, and the same is the case with real estate. Before you dive in, make sure you have considered all the factors. Putting your house at risk is daring! Failure to make the payment on time might leave you homeless. So, crunch some numbers and offer collateral by keeping the cash flow of your business in mind. Save yourself from a risk and put your plane, car or any vehicle as collateral – any valued equipment other than a plant will work.
Borrowers can offer outstanding invoices from customer’s behalf as collateral. This is perfect for business owners who have slow-paying customers. Sacrifice those invoices and get the cash in return to cover operation cost, buy new equipment or stock up on inventory. Unpaid invoices can act as a guarantee if you are applying for a loan with a poor or bad credit score. With this, the borrower has to sacrifice a chunk of money, but borrowers get enough flexibility to invest in other projects and grow the business.
You can also offer your long-time savings as collateral. Nothing says I will pay the loan on time more than offering a bundle of cash to the lender. This way is most appreciated by the lenders, it saves them the trouble of actually selling the asset and using that money to cover losses. From the lenders’ point of view, this method is risk-free, the potential lender has access to your bank account and can liquidate your savings the very second you fail to make the repayment. From a borrower’s point of view, the savings of your entire lifetime are at risk. Weigh the pros and cons before deciding.
If you need funds to buy new equipment then, Inventory financing is the best way. Here, the purchased equipment or the inventory will act as collateral. If the borrower fails to make clear off debt, the lender will take over the inventory. As mentioned above, the lender has to sell the object in order to cover the losses. Sometimes, it gets hard for the lender to sell inventory at a reasonable cost which eventually results in huge loss. Due to this reason, the lender refrains from accepting inventory as collateral.
If you can’t agree to the terms of a collateralized loan, and are uncomfortable to put your valuables at risk then, you have an option to apply for a personal loan. Other than this you can also take help from a co-signer. You can also consider Peer-to-Peer lending; it allows you to get a loan from an individual rather than a lending institution or a bank.
All things considered if you have a decent credit score with reliable payment history you can negotiate with the lender and secure a collateralized loan on your own terms. Before making a final decision you must consider your financial needs and see if it worth the risk or not. Only say yes to the deal if you think you can complete your end on the deal and work with a loan specialist.
Head over to our website and get a collateralized loan on affordable rates and adjustable payment terms. To keep yourself informed and updated regarding the recent trends in the small business loan industry, you can follow us on Twitter (@Onlinecheck.com) and Facebook (@Onlinecheck.com). In case of any question feel free to call us on our toll-free number at (833) 827-4412, our loyal and keen financial advisor will answer your every question and guide you throughout the way. Make a wise choice and grow your business.